Insurance has existed for thousands of years, originating in ancient Babylonia and practiced by Phoenicians and Greeks to protect maritime trade. Romans used burial clubs for life insurance. In medieval Europe, guilds protected members from losses. The first known insurance contract was in 1347 Genoa. Lloyd's of London was founded in 1688 as a meeting place for merchants and underwriters. Edmond Halley constructed the first mortality table in 1693. The first U.S. insurance companies were founded in the late 18th century. Friendly societies provided insurance to members. Government has increasingly provided insurance for workers, veterans, and employees. Regulation of insurance has increased since the 1940s. Rapidly rising premiums have

1. Principles of Risk Management & Insurance
Topic: History & Evolution of Insurance
Prepared By: Muhammad Ijaz Aslam
Reg. # L1F11MCOM2083
M.COM – Sec. B
Submitted To: Prof: Rabia Mustafa

2. Introduction:
Unpredictability, each of us lives with it, not knowing what each new day will bring. It is this
very uncertainty which gave way to the development of the business of insurance. This article
will give you a very brief overview of the origination and history of insurance, as well as the
basic premises upon which it operates.
Definition of Insurance:
A contract in which an individual or entity receives financial protection or
reimbursement losses from an insurance company. The company pools
clients’ risks to make payments more affordable for the insured.
History & Evolution of Insurance
The roots of insurance might be traced to Babylonia, where traders were encouraged to assume
the risks of the caravan trade through loans that were repaid (with interest) only after the goods
had arrived safely—a practice resembling bottomry and given legal force in the Code of
Hammurabi (2100 B.C.). The Phoenicians and the Greeks applied a similar system to their
seaborne commerce. The Romans used burial clubs as a form of life insurance, providing funeral
expenses for members and later payments to the survivors.
With the growth of towns and trade in Europe, the medieval guilds undertook to protect their
members from loss by fire and shipwreck, to ransom them from captivity by pirates, and to
provide decent burial and support in sickness and poverty. By the middle of the 14th cent., as
evidenced by the earliest known insurance contract (Genoa, 1347), marine insurance was
practically universal among the maritime nations of Europe. In London, Lloyd's Coffee House
(1688) was a place where merchants, ship-owners, and underwriters met to transact business. By
the end of the 18th century, Lloyd's had progressed into one of the first modern insurance
companies. In 1693 the astronomer Edmond Halley constructed the first mortality table, based on
the statistical laws of mortality and compound interest. The table, corrected (1756) by Joseph
Dodson, made it possible to scale the premium rate to age; previously the rate had been the same
for all ages.

3. Insurance developed rapidly with the growth of British commerce in the 17th and 18th cent.
Prior to the formation of corporations devoted solely to the business of writing insurance,
policies were signed by a number of individuals, each of whom wrote his name and the amount
of risk he was assuming underneath the insurance proposal, hence the term underwriter. The
first stock companies to engage in insurance were chartered in England in 1720, and in 1735, the
first insurance company in the American colonies was founded at Charleston, S.C. Fire
insurance corporations were formed in New York City (1787) and in Philadelphia (1794). The
Presbyterian Synod of Philadelphia sponsored (1759) the first life insurance corporation in
America, for the benefit of Presbyterian ministers and their dependents. After 1840, with the
decline of religious prejudice against the practice, life insurance entered a boom period. In the
1830s the practice of classifying risks was begun.
The New York fire of 1835 called attention to the need for adequate reserves to meet
unexpectedly large losses; Massachusetts was the first state to require companies by law (1837)
to maintain such reserves. The great Chicago fire (1871) emphasized the costly nature of fires in
structurally dense modern cities. Reinsurance, whereby losses are distributed among many
companies, was devised to meet such situations and is now common in other lines of insurance.
The Workmen's Compensation Act of 1897 in Britain required employers to insure their
employees against industrial accidents. Public liability insurance, fostered by legislation, made
its appearance in the 1880s; it attained major importance with the advent of the automobile.
In the 19th century, many friendly or benefit societies were founded to insure the life and health
of their members, and many fraternal orders were created to provide low-cost, members-only
insurance. Fraternal orders continue to provide insurance coverage, as do most labor
organizations. Many employers sponsor group insurance policies for their employees; such
policies generally include not only life insurance, but sickness and accident benefits and old-age
pensions, and the employees usually contribute a certain percentage of the premium.
Since the late 19th century, there has been a growing tendency for the state to enter the field of
insurance, especially with respect to safeguarding workers against sickness and disability, either
temporary or permanent, destitute old age, and unemployment. The U.S. government has also

4. experimented with various types of crop insurance, a landmark in this field being the Federal
Crop Insurance Act of 1938. In World War II the government provided life insurance for
members of the armed forces; since then it has provided other forms of insurance such as
pensions for veterans and for government employees.
After 1944 the supervision and regulation of insurance companies, previously an exclusive
responsibility of the states, became subject to regulation by Congress under the interstate
commerce clause of the U.S. Constitution. Until the 1950s, most insurance companies in the
United States were restricted to providing only one type of insurance, but then legislation was
passed to permit fire and casualty companies to underwrite several classes of insurance. Many
firms have since expanded, many mergers have occurred, and multiple-line companies now
dominate the field. In 1999, Congress repealed banking laws that had prohibited commercial
banks from being in the insurance business; this measure was expected to result in expansion by
major banks into the insurance arena.
In recent years insurance premiums (particularly for liability policies) have increased rapidly,
leaving unprecedented numbers of Americans uninsured. Many blame the insurance
conglomerates, contending that U.S. citizens are paying for bad risks made by the companies.
Insurance companies place the burden of guilt on law firms and their clients, who they say have
brought unreasonably large civil suits to court, a trend that has become so common in the United
States that legislation has been proposed to limit lawsuit awards. Catastrophic earthquakes,
hurricanes, and wildfires in late 1980s and the 90s have also strained many insurance company's
reserves.
Bibliography:
R. I. Mehr, Principles of Insurance (1985)
E. J. Vaughn, Fundamentals of Risk and Insurance (1986).